Code Section 6501

Code Section	Effective Date	Name of Act	Name of Provision	10yr Revenue Estimate ($millions)
6229 and 6501	*3/18/2010	The Hiring Incentives to Restore Employment Act	Modification of statute of limitations for significant omission of income in connection with foreign assets	***See sec. 1471
6501(c)	**3/18/2010	The Air Traffic Control Act	Limitation on Extension of Statute of Limitations for Failure to Notify Secretary of Certain Foreign Transfers	No revenue

*Notes on Effective Date

The provision applies to returns filed after the date of enactment (March 18, 2010) as well as for any other return for which the assessment period specified in section 6501 has not yet expired as of the date of enactment (March 18, 2010).

** Notes on Effective Date

The provision is effective as if included in section 513 of the Hiring Incentives to Restore Employment Act.¹²⁸⁶ Thus, the provision applies for returns filed after March 18, 2010, the date of enactment of that Act, as well as for any other return for which the assessment period specified in section 6501 had not yet expired as of that date.

***Notes on Revenue Estimate

See section 1471, provision: Reporting on certain foreign accounts.

Modification of statute of limitations for significant omission of income in connection with foreign assets

Explanation of Provision⁶¹⁰

The provision authorizes a new six-year limitations period for assessment of tax on understatements of income attributable to foreign financial assets. The present exception that provides a six year period for substantial omission of an amount equal to 25 percent of the gross income reported on the return is not changed.

The new exception applies if there is an omission of gross income in excess of $5,000 and the omitted gross income is attributable to an asset with respect to which information reports are required under section 6038D, as applied without regard to the dollar threshold, the statutory exception for nonresident aliens and any exceptions provided by regulation. If a domestic entity is formed or availed of to hold foreign financial assets and is subject to the reporting requirements of section 6038D in the same manner as an individual, the six-year limitations period may also apply to that entity. The Secretary is permitted to assess the resulting deficiency at any time within six years of the filing of the income tax return.

In providing that the applicability of section 6038D information reporting requirements is to be determined without regard to the statutory or regulatory exceptions, the statute ensures that the longer limitation period applies to omissions of income with respect to transactions involving foreign assets owned by individuals. Thus, a regulatory provision that alleviates duplicative reporting obligations by providing that a report that complies with another provision of the Code may satisfy one’s obligations under new section 6038D does not change the nature of the asset subject to reporting. The asset remains one that is subject to the requirements of section 6038D for purposes of determining whether the exception to the three-year statute of limitations applies.

The provision also suspends the limitations period for assessment if a taxpayer fails to provide timely information returns required with respect to passive foreign investment corporations ⁶¹¹ and the new self-reporting of foreign financial assets. The limitations period will not begin to run until the information required by those provisions has been furnished to the Secretary. The provision also clarifies that the extension is not limited to adjustments to income related to the information required to be reported by one of the enumerated sections.

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Limitation on Extension of Statute of Limitations for Failure to Notify Secretary of Certain Foreign Transfers

Explanation of Provision

The provision modifies the scope of the exception to the limitations period if a failure to provide information on cross-border transactions or foreign assets is shown to be due to reasonable cause and not willful neglect. In the absence of reasonable cause or the presence of willful neglect, the suspension of the limitations period and the subsequent three-year period that begins after information is ultimately supplied apply to all issues with respect to the income tax return. In cases in which a taxpayer establishes reasonable cause, the limitations period is suspended only for the item or items related to the failure to disclose. To prove reasonable cause, it is anticipated that a taxpayer must establish that the failure was objectively reasonable (i.e., the existence of adequate measures to ensure compliance with rules and regulations), and in good faith.

For example, the limitations period for assessing taxes with respect to a tax return filed on March 31, 2011 ordinarily expires on March 31, 2014. In order to assess tax with respect to any issue on the return after March 31, 2014, the IRS must be able to establish that one of the exceptions applies. If the taxpayer fails to attach to that return one of multiple information returns required, the limitations period does not begin to run unless and until that missing information return is supplied. Assuming that the missing report is supplied to the IRS on January 1, 2013, the limitations period for the entire return begins, and elapses no earlier than three years later, on January 1, 2016. All items are subject to adjustment during that time, unless the taxpayer can prove that reasonable cause for the failure to file existed. If the taxpayer establishes reasonable cause, the only adjustments to tax permitted after March 31, 2014 are those related to the failure to file the information return. For this purpose, related items include (1) adjustments made to the tax consequences claimed on the return with respect to the transaction that was the subject of the information return, (2) adjustments to any item to the extent the item is affected by the transaction even if it is otherwise unrelated to the transaction, and (3) interest and penalties that are related to the transaction or the adjustments made to the tax consequences.

1286- Pub. L. No. 111–147.
-Return to Explanation of Provision

610- This provision was subsequently amended by section 218 of the ll Act of ll, Pub. L. No. 111–226, to provide a reasonable cause exception under which the suspension of a limitations period under section 6501(c)(8) may not apply to the entire return. See Part Twelve for a description of the provision.
-Return to Explanation of Provision

611- Sec. 1295(b), (f).
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